Republicans Block Latest Effort by Democrats to Advance Debt-Ceiling Bill

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McConnell objected to Schumer’s effort to allow it to pass on a simple majority vote, citing Democrats’ spending plans

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“It is imperative that Congress swiftly address the debt limit. If it does not, America will default for the first time in history,” Ms. Yellen warned in testimony before the Senate Banking Committee, highlighting the potential consequences of the financial crisis and recession. listed as.

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Senate Republicans have said that the Democrats themselves, as the party in power, should raise the ceiling. Democrats have emphasized that raising the debt limit is a shared responsibility on both sides and said that during the Trump administration votes to lift or suspend the debt limit were bipartisan. The vote to raise the debt limit does not authorize new spending; Instead it essentially allows the Treasury Department to raise funds to pay for government-authorized expenses.

Congress can either raise the limit, which allows the Treasury to borrow up to a certain dollar amount, or suspend it, which allows the agency to borrow as much as it needs by a certain date.

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US stocks tumbled on Tuesday, marking their sharpest fall since May, and selling pressure intensified in the bond market. The yield on the benchmark 10-year Treasury note rose for the sixth consecutive day on Tuesday at 1.534%, the highest level since the end of June. Bond yields increase with a fall in prices.

Senate Majority Leader Chuck Schumer (D., NY) on Tuesday sought unanimous consent to go straight to a final vote on debt-limit increases, allowing Democrats to raise the ceiling on their own with only a majority vote. Meet. But Senate Minority Leader Mitch McConnell (R., Ky.) objected, barring the legislative maneuver.

“We’re just asking Republicans: Get out of the way,” Schumer said. “We can bring it down to a resolution today.”

Mr McConnell responded that Republicans “won’t help Democrats save their time and energy so that they can restart through partisan socialism as quickly as possible,” according to President Biden’s $3.5 trillion health care, education and climate agenda. But there is a debate going on in Congress.

The Treasury has been using emergency measures to conserve cash since August 1, when the debt limit was reinstated after a two-year suspension. A potential default could send the markets into a tailspin.

In a letter to lawmakers on Tuesday, Ms Yellen said the US could exhaust its cash reserves from October 18 if the debt limit is not raised or suspended. Tuesday’s letter is the first time it has provided a specific estimate for the so-called X-date.

The US faces an estimated $20 billion in Social Security payments as well as $6 billion in individual tax refunds as of October 20, according to forecasts from the Bipartisan Policy Center. It faces another $49 billion in payments by October 29, and then an additional $80 billion in payments on November 1, including $14 billion in interest on federal loans.

After Mr Schumer’s failed plan to raise the debt limit, Democrats scrambled for options. Those approaches include reopening the procedures they adopted for the $3.5 trillion budget package they are currently in as a stand-alone bill or as part of a larger budget agenda as a way to raise the debt limit. writing for.

Such a move would allow Democrats to move a bill with a simple majority 50-50 through the Senate, rather than the 60 required by most laws. However, this would be a complex and potentially time-consuming process, and it is not entirely clear that it can be completed in a timely manner.

Senate Finance Committee Chairman Ron Wyden (D., Ore.) said Democrats would find a way forward, but declined to specify how, with Mr. Schumer rejecting the idea of ​​revising his current budget proposal. Gave.

William Hoagland, a former Republican budget aide and senior vice president of the Bipartisan Policy Center, has said he thinks Democrats can revise their budget proposal to include a debt-limit increase and bring it to the president’s desk within 15 days. Huh.

House Speaker Nancy Pelosi (D., Cal.) told reporters Tuesday that Democrats have discussed several approaches, noting that Rep. Jerrold Nadler (D., NY) has advocated platinum coinage to create new money for the federal government, and that another legislator has proposed giving the Treasury Secretary the responsibility of raising the debt limit, Congress. reserves the right to reject any enhancement.

“We’ve talked about many things,” said Mrs Pelosi. “Right now, we have to raise the loan limit.”

Other Democrats proposed eliminating or limiting the 60-vote filibuster to enable Democrats to raise the debt ceiling with a simple majority, an idea used by Republicans to allow a straight up or down debt ceiling vote. After the protest was more widely circulated.

Yasha Yadav, a law professor at Vanderbilt University specializing in financial market structure, said the Biden administration could attempt to act on its own, either by minting coins of any denomination and depositing it with the Federal Reserve for money. A new source of , or acting unilaterally, citing President Biden’s responsibility to comply with the 14th Amendment to the Constitution, which says the legality of the public debt “will not be questioned.”

But it could risk a constitutional court challenge with uncertain consequences. “This is uncharted territory,” she said.

Then-Senate Majority Leader Harry Reid (D., Nev.) recommended in 2011 that President Obama use his executive powers to raise the debt limit on his own, a former aide to Mr. Reid confirmed. Mr Obama rejected the advice because he thought Republicans would challenge him in court, the aide said. This idea was never revisited.

Fed Chairman Jerome Powell, along with Ms Yellen during Tuesday’s hearing, said a crisis-management playbook Federal Reserve officials had put together during a similar standoff in 2013 that some analysts believe is If the federal government cannot, the response of the central bank may guide this decline. Pay all your bills shouldn’t lead lawmakers to conclude that the Fed can fully offset a financial disaster.

The Fed did not publicize those preparations because it “didn’t want to create a misunderstanding on the part of the public that we can actually protect the financial markets and the economy and the American people from the consequences of default,” he said Tuesday. .

The debt-limit deadlock is already rolling through short-term money markets, as investors demand higher yields to hold Treasuries with the greatest risk of delayed payments. Typically, investors demand higher returns for Treasuries with longer maturities to offset the risk that the Fed may raise interest rates or that inflation will accelerate, reducing the value of those bonds.

But in recent weeks, short-term Treasury bills maturing from mid-October to mid-November have offered higher yields than those maturing a few months later, a sign that some investors are hedging a potential default. How to give up some securities for

Siobhan Hughes at [email protected], Nick Timiros at [email protected] and Kate Davidson at [email protected]

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